When it comes to car insurance, you’re probably worried about two things: How to get it and how much it’ll cost. Unfortunately, understanding how your monthly premium is calculated can be easier said than done, especially when there are so many factors that go into the equation.
That’s where we come in. Here is everything you need to know about your auto insurance monthly premium:
What is an auto insurance monthly premium?
Your coverage types, limits, and deductibles determine the monthly premium cost of car insurance that will ensure you are protected financially and legally when it comes to owning and driving your car and, possibly, being involved in a car accident.
Your monthly premium is the monthly payment that makes up the total cost of your car insurance coverage. This coverage is usually valid for anywhere between six months and a year.
Depending on the type of insurance policy you choose, an insurance deductible is how much you have to pay upfront and out of pocket before your insurance jumps in to cover the rest.
For example, if you’re in a car accident and the damage done to your car costs $2,000 and your deductible is $500 dollars, that means you only have to pay $500 toward the repairs and your insurance company will pay the remaining $1,500. This, of course, depends on the type of auto insurance coverage you purchase because your deductible amount and monthly premium are determined by your insurance policy.
How much does a monthly premium cost?
The cost of your monthly premium depends on how much your car insurance costs, which can not only vary by state, but also by the type and year of your car, your driving status, how far you drive to and from work, your credit score, the zip code in which you live, and more! So many factors are considered to determine your monthly premium price. According to the National Association of Insurance Commissioners, the average nationwide auto insurance cost is just over $1,000 per year.
But it all starts with the type of auto insurance policies you choose. There are two main categories of car insurance: insurance you get to cover damage done to other drivers, or liability insurance, and insurance you get to cover damage done to yourself.
Liability insurance is required in nearly every state, and it protects you financially if you injure someone or damage their car or other property in an at-fault accident. It pays for the other parties’ damages.
Comprehensive and collision car insurance cover the cost of repairs for your car if it’s damaged in a car accident (or if it’s stolen or has a tree fall on it).
There is also personal injury insurance, which covers bodily injury to you or any of your passengers, and uninsured/underinsured motorist insurance, which pays the difference if the at-fault person involved in the car accident is unwilling or unable to pay.
Choosing the type of insurance policies and coverage you want will be a major factor in the price of your monthly premium and deductible.
What are some other car insurance considerations?
In every state there is an auto insurance minimum, meaning you’ll have to pay a monthly premium for that type of coverage in order to legally drive. The rest is up to you. Sort of.
If you’re still paying off your car, you may be required by the financing company to purchase comprehensive and collision coverage despite there being no legal requirement.
While there are some tricks that drivers use to help them save money on these kinds of policies upfront, these strategies could end up costing them more in the long run.
Remember when we talked about deductibles? High deductibles often go hand-in-hand with low monthly premiums. But this isn’t always a good thing.
For example, if you chose a policy with a $5,000 deductible to get a lower premium, you’ll have to pay that $5,000 before you receive any help from insurance which could mean financial stress if you don’t have that saved up.
More than just saving money, many drivers also hope and assume that other drivers have purchased the necessary coverage in order to pay for damage done to you or your car in the case of an accident.
However, there are those who choose to not even carry the minimum insurance required, meaning there is no company to support them financially. Hit and runs become an attractive option to those who fear a hefty insurance claim bill in the face of an accident that isn’t covered.
Will the price of my monthly premium change?
The quick answer is, it can.
There are specific instances where your monthly premium is likely to change—which could be an increase or a decrease. The most drastic increase you’d see in your monthly premium is after you file an auto insurance claim due to an at-fault car accident. In this case, you could see over a 40% increase.
It is important to follow safe driving tips to ensure you are doing everything you can to avoid car accidents that could result in this change. And while not as drastic, your monthly premium is also likely to fluctuate if you move to a new zip code, get a different car, or increase or decrease your monthly driving miles.
How do I get the best monthly premium rates?
The best monthly premium rates come from the best car insurance companies who offer competitive insurance quotes and have inexpensive insurance policies.
Most auto insurance companies also offer various discounts to help keep your expenses down, such as safe driver discounts, university discounts, bundling discounts, and annual payment discount options.